Freeserve, Britain's largest internet service provider, and AOL UK, its nearest rival, are understood to be working on plans to match AltaVista's commitment to offer unlimited access to the web in return for an upfront fee.

Analysts believe that the heavyweight duo could have their offerings in place by the time AltaVista's package is expected to go live in June, heralding a war of attrition between the leading internet service providers and cheaper net access for consumers.

AltaVista said yesterday that it will connect people to the net via a freephone number for a one-off joining fee of £30 to £50 and an annual renewal charge of £10 to £20. It hopes 1m customers will sign up for the service within a year, citing the cost of calls as one of the biggest obstacles to people connecting the the internet.

Merrill Lynch analyst Peter Bradshaw said the dominant operators were unlikely to let their positions be eroded. "The other free ISPs are likely to come out with similar or improved packages within the next few weeks," he said.

Miles Saltiel, technology analyst at West LB Panmure, echoed his sentiments. "It puts all the big ISPs on their mettle," he said. "Those with the deepest pockets will win."

Freeserve admitted that it was working on its own low-cost packages and ways of reducing its 4p per minute call charges. "We have always said that connectivity will become a less significant contributor to revenues," a spokesman said. "We welcome any moves that get more people in the UK online." Its shares closed down 47p at 873p, however.

Oftel, the telecommunica tions watchdog which has asked internet service providers to lower subscription costs and call charges in an attempt to encourage more people online, said the news was "excellent".

Tony Blair, who has called on British Telecommunications to lower the cost of its internet call charges and help prevent the web from becoming the preserve of the wealthy, also welcomed the move.

BT is committed to launch unmetered access but is still negotiating terms with the regulator and other ISPs.

Around one quarter of the British population is online but in the US, where local calls are free, the figure is closer to one half. Durlacher analyst Nick Gibson believes unmetered internet access could treble the amount of time British users spend online.

Mr Bradshaw said AltaVista's move signalled the death of access-only internet service providers and switched the focus towards the content, community and commerce. "It's all in the portal now and not the connectivity," he said.

However details of the AltaVista package remain sketchy. Rivals suggest that users who sign up are likely to be heavily targeted by advertisers.

MCI Worldcom has been rumoured to be the company's chosen telecommunications provider, but AltaVista's European marketing director, Vesey Crichton, refused to confirm or deny whether a partner had yet been found.

Advertising and e-commerce revenues will offset the cost of subsidising calls, Mr Crichton said. Subscribers will be limited to 500,000 so AltaVista can cope with demand.

The managing director of one of Britain's largest ISPs estimated that if AltaVista customers follow the pattern of US users and spend an average of 15 hours a month online, and the company attracts its targeted 1m users, the exercise will cost upwards of £50m in call charges alone in year one. "They're going to subsidise the hell out of this," he said.

AltaVista has attracted 2m users in the US since launching the same model there. However, AOL UK's Matt Peacock questioned whether advertising and e-commerce revenues were enough to sustain AltaVista's model.